Yes, a 401(k) or IRA balance can count toward the reserves on a DSCR investment-property loan, but not at full value: retirement accounts take a 30% haircut, so 70% of the balance is what we credit. And if the plan does not allow any type of withdrawal, the balance counts as zero for reserves no matter how large it is.
The rest of this page is the mechanism behind it: the full asset-type haircut table, what evidence we ask for, which assets are excluded outright, and the sequencing mistakes that cost investors a closing date.
What the reserve requirement actually is on the DSCR side
Reserves on this program are measured in months of PITIA on the subject property — principal, interest, taxes, insurance and association dues. Not months of household expenses, not a flat dollar figure. The requirement scales with the coverage ratio:
| Situation | Reserves required |
|---|---|
| DSCR ≥ 1.0 | 3 months PITIA on the subject property |
| DSCR < 1.0 | 6 months PITIA on the subject property |
| Short-term rental | Additional 6 months PITIA |
| Portfolio loan, vacant transaction | Additional 6 months PITIA — 9 months in total |
A portfolio loan is treated as a vacant transaction when 25% or more of the included properties are vacant — on a purchase or on a refinance/cash-out.
One quiet detail that changes the math on interest-only loans: on the 10-year interest-only option, reserve requirements are based on the ITIA payment rather than the fully amortizing PITIA. A lower payment means a lower reserve dollar figure for the same number of months.
This is the DSCR 1-4 unit side of the house, and the unit of measure is PITIA. If you are sizing reserves on a small balance commercial loan instead, that program uses its own months-of-P&I standard — [we cover the commercial reserve requirement separately](/blog/how-much-cash-reserves-do-you-need-for-a-commercial-loan). Do not carry a number from one program into the other.
The asset type and haircut table
Every dollar you present gets sorted into a row. The haircut column is the discount applied before the balance is credited toward reserves and cash to close. "None" means the balance counts at full face value.
| Asset type | Haircut | What we require |
|---|---|---|
| Checking / savings / money market / CDs | None | Two months of immediately preceding account statements |
| Publicly traded stocks, bonds, mutual funds | None | Two months of immediately preceding account statements |
| Retirement accounts (401(k), IRAs, etc.) | 30% | Two months of immediately preceding statements; evidence of liquidation if using for down payment or closing costs; evidence of access to funds for employer-sponsored accounts; accounts that do not allow any type of withdrawal are ineligible for reserves |
| Cash value of life insurance; annuities | Applicable penalty, as defined by the current policy statement | Current policy statement |
| 1031 exchange | Reverse 1031 exchanges not allowed | HUD-1/CD for both properties; exchange agreement |
| Business funds (account not in the name of the borrowing entity) | Allowed for down payment, closing costs and reserves with additional requirements met | Natural borrower/guarantor must own 25% or more of the entity holding the account, and must be named on the account or provide proof of access to 100% of the funds from the other members |
| Gift funds | Permitted with restrictions | See the gift fund rules |
| Gift of equity | Not permitted | — |
| Foreign assets | Permitted unless the source of funds originates from a country on the Prohibited, Discouraged or High Risk Country List | Documented evidence of the foreign asset exchanged into U.S. dollars and held in a U.S. financial institution; verification of the funds in U.S. dollars prior to closing |
| Virtual currency | Not permitted unless converted to U.S. currency and deposited into an eligible asset account | Documentation showing the funds came from a digital currency account owned by the borrower/guarantor |
| Non-vested or restricted stock accounts | Not permitted | — |
| Cash-on-hand | Not permitted | — |
| Down payment assistance programs | Not permitted | — |
| Unsecured loans or cash advances | Not permitted | — |
Two things worth noticing before you go further.
First, publicly traded stocks, bonds and mutual funds take no haircut on this program. Investors routinely assume a brokerage account gets discounted for market volatility. On this table it does not. A taxable brokerage account is treated the same as a checking account.
Second, the life insurance and annuity row does not carry a fixed percentage. The haircut is whatever surrender penalty the current policy statement defines. The guideline does not publish a number, and neither will we — pull the statement and read the penalty.
Why retirement money is discounted and brokerage money is not
The 30% is not a judgment about the quality of the asset. It is a judgment about what the asset is actually worth on the day you would need it.
If a deal goes sideways eighteen months from now and you have to reach for reserves, a taxable brokerage account converts to cash in a couple of business days at roughly its stated value. A retirement account does not. Getting money out of a 401(k) or an IRA can involve an early-withdrawal penalty and ordinary income tax on the distribution, and employer-sponsored plans add a layer of administrative friction — plan rules, spousal consent in some plans, processing windows measured in weeks rather than days.
So the balance on the statement overstates the dollars that would actually show up in your account. The haircut is the program's standing estimate of that gap. Thirty percent off, applied uniformly, rather than a per-borrower calculation of your marginal tax rate and your plan's specific rules.
Practically: a $200,000 IRA is credited as $140,000. A $60,000 401(k) is credited as $42,000. If your reserve requirement is $18,000 and the only asset you are presenting is a retirement account, you need roughly $25,715 in it, not $18,000.
The withdrawal test that turns a large balance into zero
This is the part that catches people, and it is worth reading twice.
A retirement account that does not allow for any type of withdrawal is ineligible for reserves. Not haircut further — ineligible. Zero.
The ineligible-assets list states the same test from the other direction: funds that cannot be withdrawn under circumstances other than the account owner's retirement, employment termination, or death do not count as an asset.
Read those together and the rule is clear. If the only way to get money out of your plan is to retire, quit, be fired, or die, the balance is not a reserve. It is a retirement benefit. Some employer-sponsored 401(k) plans are written exactly this way for current employees — no in-service distributions, no hardship withdrawals, and a loan provision that may or may not exist. A participant can be looking at a six-figure statement that produces nothing for underwriting purposes.
What "evidence of access" means in practice
For employer-sponsored retirement accounts, the table requires evidence of access to the funds. That is a document, not an assurance. In practice it is the plan document, the summary plan description, or a letter from the plan administrator confirming that a withdrawal or distribution is available to you as a current participant.
There is a second, separate requirement that only applies when you are using retirement money for down payment or closing costs rather than reserves: evidence of liquidation. You have to show the money came out — the distribution confirmation and the deposit landing in an eligible account.
The distinction matters and people mix it up:
- Using retirement funds for reserves: the money stays in the account. You are proving the balance exists and that you could reach it. No liquidation required.
- Using retirement funds for down payment or closing costs: the money has to actually move. Evidence of liquidation is required.
Assets that are excluded outright
Separate from the haircut table, the guideline carries an ineligible-assets list. Nothing on it counts at any percentage:
- Funds or cash that have not been vested and/or seasoned, where the source cannot be verified
- Funds that cannot be withdrawn except on the account owner's retirement, employment termination, or death
- Stock held in an unlisted corporation
- Non-vested stock options and non-vested restricted stock
- Personal unsecured loans
- Proceeds from the sale of non-real estate assets
- Cash advances on revolving credit cards or lines of credit
- Interested party contributions — the property seller, builder or developer, real estate agent, broker, or any affiliate who may benefit from the sale of the property or from the highest possible sale price
- Seller, developer or broker credits of any kind, including advanced rent payments for a seller lease-back
- Rent credits
- Sweat equity — labor and materials used to improve the property
- A loan from the borrower's business, unless it is placed on full stand-by (principal and interest) for the term of the loan and the source of funds can be verified
- SBA Paycheck Protection Program funds, or any other similar COVID-19-related program
The stock entries deserve a note. Publicly traded stock takes no haircut, but stock in an unlisted corporation is ineligible and non-vested or restricted stock is not permitted. Founders and early employees holding meaningful paper in a private company are, for reserve purposes, holding nothing.
One internal inconsistency you should know about rather than discover: the asset-sources language states that sales proceeds, the sale of personal property, commissions from a sale, and funds received from collateralized loans may be acceptable subject to appropriate evidence — while the ineligible list excludes proceeds from the sale of non-real estate assets. The two passages sit in the same document and pull in different directions. Treat proceeds from selling personal property as unresolved, not as approved, and get a read on your specific facts before you count on the money.
Proceeds of a loan fully secured by real estate you own other than the subject property are handled differently, and are acceptable.
The rules around the haircut that decide whether your file works
Getting the percentages right is only half of it. The sequencing rules below are what break files.
Down payment dollars cannot double as reserve dollars. Funds used for down payment and closing costs cannot be included in reserve funds. Reserves are what remains after closing.
Everything gets verified before funding, at roughly the same moment. Liquid assets required for post-closing reserves are evidenced and verified prior to funding. Eligible assets of all borrowers and guarantors may be combined to evidence liquidity, and are verified at approximately the same time specifically to prevent the same dollars being counted twice across accounts.
Assets must sit in a U.S. account. Foreign assets have their own path — converted, documented, and verified in U.S. dollars before closing — and are unavailable if the source is a country on the Prohibited, Discouraged or High Risk Country List.
Two months of statements, sixty days of activity. Asset verification must provide 60 days of account activity and include all items normally shown on account statements. Large deposits inconsistent with your normal monthly activity must be explained and documented if you are using the account for down payment, reserves or closing costs. Newly opened accounts get the same scrutiny. Unverified funds are not acceptable.
Gift funds cannot meet the reserve requirement. They are permitted with restrictions toward cash to close, and they are excluded from post-closing liquidity and P&I reserve requirements entirely. The cap and the donor rules are their own subject — [we cover gift funds on a DSCR loan separately](/blog/can-you-use-gift-funds-for-a-dscr-loan).
Cash-out proceeds can cover reserves only above a credit threshold. Cash-out may be used for reserves if FICO is greater than 700. That is well above the program floor — minimum FICO on this program is 660 for all guarantors — so a borrower who qualifies for the loan does not automatically qualify to reserve out of their own proceeds.
A worked illustration
Figures below are invented for the purpose of showing the arithmetic. They are not a quote and not an approval.
An investor is buying a single-family rental. PITIA works out to $2,400 per month. The appraised market rent supports a DSCR of 1.12, so the requirement is 3 months PITIA: $7,200 in post-closing reserves.
Assets presented:
- $9,000 in checking — counts at full value, $9,000
- $22,000 in a rollover IRA — 30% haircut, counts as $15,400
- $40,000 in a current employer 401(k) with no in-service distribution allowed — ineligible for reserves, counts as $0
- $6,000 gift from a parent — permitted toward cash to close within the gift rules, excluded from reserves
Down payment and closing costs consume the $9,000 in checking plus the gift. Those dollars are gone from the reserve calculation. What remains is the IRA at $15,400 against a $7,200 requirement. The file clears — but only because the rollover IRA is reachable. Had the entire $62,000 been sitting in the locked employer plan, the same borrower would have shown $0 in reserves.
Change one fact — make it a short-term rental — and the requirement becomes 3 months plus an additional 6, or 9 months of PITIA: $21,600. The $15,400 no longer covers it.
What trips people up
Counting the statement balance. The 30% is applied before anything else. Budget from the net figure.
Assuming a 401(k) loan solves it. A loan against a plan is a separate mechanism from a withdrawal, and the guideline's access requirement is written around withdrawal availability. Do not assume a loan provision satisfies it; ask, with the plan document in hand.
Presenting a business account casually. Funds in an account not held in the name of the borrowing entity are usable for down payment, closing costs and reserves, but only with the ownership and access conditions met — 25% or greater ownership of the entity holding the account, and either being named on the account or documenting access to 100% of the funds from the other members. That is a document request, not a conversation.
Forgetting the short-term rental add-on. Six additional months of PITIA is a large number on a property where the whole thesis is nightly rate upside. Size it at the front of the deal.
Treating "may be acceptable" as "is acceptable." Several asset categories are hedged in the source text. Hedged language means a case-by-case review, not a yes.
What this page does not do
This page explains how retirement and other asset balances are treated for reserves on The Fiirm's DSCR 1-4 unit investor program, under DSCR guideline V28. It is not an approval, not a quote, and not a commitment to lend. Rates, LTV limits and pricing are not addressed here at all.
It does not tell you whether to take money out of a retirement account. That is a tax and retirement-planning question with consequences well outside a loan file, and it belongs to your accountant or tax advisor.
It does not cover the gift fund cap or donor eligibility, which are their own subject; it does not cover the commercial program's reserve standard, which is measured differently; and it does not address the DSCR calculation itself, the appraisal and Form 1007 rent support behind it, credit and trade line requirements, entity and guaranty structure, or the property eligibility rules that sit upstream of any of this.
It also does not resolve the internal tension noted above regarding proceeds from the sale of non-real estate assets. Where the guideline is genuinely unsettled, we say so rather than pick the convenient reading. Underwriting decisions are made on a complete file, and individual loan characteristics can move published standards.
Guideline DSCR V28 · Reviewed August 31, 2026
Published September 1, 2026 · Updated September 1, 2026
How to use this guide
This article is educational guidance, not an offer or commitment to lend. Rules, property facts, credit, leverage, documentation, and full underwriting still control any actual scenario.